Economic Direct Democracy

LEDDA (Lē´dǝ) n. Local Economic Direct Democracy Association. A membership-based, community-benefit corporation that implements a secondary economic framework as a local overlay to an existing city or regional economy. The framework offers all members roughly equal and direct opportunity to influence their local economy.

- Principled Societies Project

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The book Economic Direct Democracy presents a new system of economic governance called Local Economic Direct Democracy (LEDDA) created by the Principled Societies Project. Project founder Dr. John Boik is a biomedical researcher by training, specializing in cancer research. John’s holistic approach to life has led him to consider alternative ways of looking at economics. The more he looked at the subject, the more he felt a holistic system approach as found in biology is exactly what is missing in economics. Thus began John’s foray into complimentary economics, a field which has grown into a second career.

Borrowing concepts from biological sciences, John created the LEDDA economic framework as one which reflects functions of natural biological systems hard-wired for cooperation and synergy…from human body systems to ecological ones.  John’s LEDDA framework is steeped in democratic decision-making processes. He marries governance with economics by refocusing the lense and seeing money as a voting tool for a participatory community rather than the traditional view of money as a measure of value or a medium of exchange.   The LEDDA system evolved from questioning the basic assumptions of our current economic paradigm and developing principles that address its many failings. It is the synthesis of local, open and participatory governance which creates incentives by paying people to participate.

The Link Between Biological and Economic Systems

After reading the preface to Economic Direct Democracy, it becomes apparent how a cancer biologist became the champion of a new economic paradigm. In fact, Dr. Boik is doing nothing less than practicing biomimcry. Dr. Boik describes the strong metaphor between biological and economic systems in the preface:

One might wonder why a cancer biologist is writing a book on economic systems. The reason is simple: I read the national news, and it’s frightening. I read science papers in a range of fields, including environmental and climate science, and economics—and many of them are frightening. I watch as too many friends and family members suffer from unemployment, inadequate health care, low wages, and job dissatisfaction. I smell foul air and see filthy water. And I wonder why life is like this, and even more, what can be done. But every simple solution that I hear of, or can think of, falls short.

Our problems are like the proverbial skein of tangled yarn—if we pull one loop in an attempt to straighten the mess, the tangle tightens elsewhere. My mother, an excellent knitter, and pragmatist, reaches for a new skein when an old one has become too jumbled to repair. It’s apparent to me that if we are to solve our intractable, intertwined socioeconomic and environmental problems, truly solve them, we will need to do something similar.

Our problems—indeed, economies themselves—are, to a substantial degree, outward expressions of inwardly held ideas and beliefs. If we are to fix our problems, then we will need to examine—and replace as necessary—root concepts. Who are we, as social creatures? And what is our relationship to other beings on this planet? What makes people happy, in the deepest sense? What is democracy? What is an economy? What is money? A good portion of Economic Direct Democracy describes new mechanisms for a better economy, but new mechanisms are useful only to the degree that they are supported by a change in understanding. Policies, institutions, and economies shift when consciousness shifts. Ideas matter more than mechanisms themselves.

In replacing established beliefs, our own biology offers a source of inspiration. There are nearly 7 billion people on the planet today—an almost incomprehensible number. It’s amazing that a global society with so
many members somehow manages to feed itself, or at least mostly feed itself. Yet the number of humans on the planet is tiny compared with the roughly 10 trillion cells that make up the human body. In some meaningful sense, these trillions of cells do a better job of cooperating with one another than we humans do.

Despite the layered dynamics inherent within the complex society of cells we call a person, each cell receives what it needs. Cells in the legs do not starve, for example, while cells in the thumbs receive excessive resources. Wastes do not pile up to dangerous levels. And the body doesn’t prematurely self-destruct if given modest care. All cells benefit the whole, and growth occurs only when and where it is needed.

The perfection and harmony manifest in this inner cellular society are nothing short of awe-inspiring, especially when contrasted with the injustices and cruelties observed in human history and in current society. Biology has much to teach about how we might organize ourselves to cooperate more fully, support others inhabiting the shared global environment, and enjoy deeper wellness.

Biology also teaches us what to avoid. Sometimes things go wrong within a cell. Its DNA can become so damaged that the cell no longer responds to the restraining signals produced by its neighbors and environment. When this cell passes on its faulty DNA to daughter cells, and they in turn pass it on to their descendants, a cancer is born. Harmony is disrupted. Anthropomorphically speaking, the new tumor displays greed. It devours the resources other cells need. In growing without restraint, it destroys everything in its path. Eventually, it destroys the very body that gives it life. Our own biology is proof that cooperation secures well-being and greed destroys it.

Fortunately, the imperative to cooperate that is genetically programmed into our cells also expresses itself in the person as a whole. Like the cells of which we are composed, we instinctively seek
cooperation. This is the good news that somehow always seems underreported. The large, perhaps vast majority of us long to cooperate and help others, and want others to cooperate and offer help in return. This crucial notion—too often missing in the public discourse—could by itself bring about rapid, positive social change. Once it is fully grasped, the misconception that humans are predominantly selfish— and deserve a dirty, dog-eat-dog world—falls away. So too does the trance-inducing power that dysfunctional systems hold over us. To the degree that a system thwarts cooperation, allows poverty, or harms the shared environment, it is understood to act against human nature and is viewed as a failure.

(Extract taken from Preface to Economic Direct Democracy)

Overview of the LEDDA Framework

For some years now, many of us have been critiquing the current economic model for its flaws and the deep injustices it perpetuates. Economic Direct Democracy will help us move from “critique” to“action” 

- Lorenzo Fioramonti, Director Centre for the Study of Governance Innovation

A LEDDA incorporates the fundamental idea that an economy is a decision-making system that belongs to the people who participate in it, hence the phrase “Economic Direct Democracy”. From the LEDDA perspective, an economy is considered to be a set of agreements shared by participants for mutual benefit, a “common good”. The LEDDA system is designed to offer all participants an unprecedented level of control over economic decision.

One of the biologically inspired design objectives of a LEDDA is to make cooperation so effortless that it becomes the default behavior. A growing body of research in neuroeconomics , evolutionary biology, game theory, psychology and many other fields support the idea that humans are hard-wired to cooperate. But cooperation is just one of the three foundations of successful social organization employed by a LEDDA. Three fundamental qualities of a LEDDA are:

  1. never discourages cooperation
  2. full transparency of actions
  3. ability to punish freeloaders

As the opening quotation of this section states, LEDDA is not so much an economic theory as it is a practical, systematic and implementable local economic strategy that can have a significant global impact. It contains by design a wish list of all the corrective economic principles that can reform the current dyfunctional system.

LEDDA issues an electronic currency called a token which is used in combination with local national currencies such as dollars. The hybrid currency system is called a token-dollar system, where the word dollar is taken to mean any national currency. Token-dollar voting takes place in two ways:

  1. purchasing decisions in the local marketplace
  2. funding decisions in the Crow-Based Financial System (CBFS)

add to this a third process, formal deliberation and voting, and this becomes the foundational decision-making processes within the LEDDA.

The LEDDA system consists of eight subsystems that work together to meet the objective of achieving the common good:

  1. a monetary system called the Token Monetary System (TMS) that creates money and regulates its volume, value, and (interest) cost;
  2. a financial system called the Crowd-Based Financial System (CBFS) that uses savings or other sources of money to fund business and other organizations;
  3. a market system that provides goods and services to consumers with special socially responsible type of business called Principled Businesses;
  4. a property rights system that assigns ownership and use rights for physical, intellectual, and other types of property;
  5. an incentive system that encourages desired behavior;
  6. a governance system called the Collaborative Governance System (CGS) that enables electronic deliberation and voting to regulate the preceding five components;
  7.  a conceptual model that describes how the economy functions;
  8. a purpose that gives meaning and direction to the preceding seven components.

ledda_model

 

 Figure 1: Token-Dollar flow within a full LEDDA system (Source: Principled Societies Project)

 

The LEDDA framework synthesizes a multiplicity of progressive regional economic approaches currently employed around the world including:

  • buy-local,
  • invest-local,
  • local-currency,
  • local-food,
  • local-sharing,
  • open-source,
  • open-government,
  • open-education,
  • open-data,
  • peer-to-peer,
  • participatory democracy,
  • sustainable development

The LEDDA framework is designed to place real economic power in the hands of the people and give communities the ability to determine their future rather than relying on  big government and big business, who are often unresponsive, self-serving and antogonistic to the needs of community. One major benefit of LEDDA both in the United States and elsewhere in many other countries, is that no legislative action is required to implement the LEDDA framework. Hence, it lends itself to rapid deployment.

LEDDA Microsimulation

There is a growing number of complimentary currency systems coming into existence but there is a paucity of computer models and simulations. The Principled Societies Project has run the first ever simulations of a mixed token and dollar economy in a US county of population 100,000 and the results are very promising. They show a significant potential to redistribute wealth in a short period of time with the following major impacts:

  • Average family incomes for members rise,
  • Income inequality shrinks,
  • Jobs are created,
  • Funds are generated for schools, nonprofits, and public service agencies,
  • Ample financial resources are available to address climate change, infrastructure decay, access to health care, and other social, environmental, and economic problems

Terminology

  • CBFS: Crowd-Based Financial System. The crowdfunding system that members use to fund for-profit businesses, nonprofit organizations, and nurture engagements. The four major arms are: lending, subsidy,
  • donation, and nurture.
  • CGS: Collaborative Governance System. The hybrid direct democracy system that members use to deliberate and vote on LEDDA rules and policy. The three arms are: administrative, legislative, and judicial.
  • Earmarks: A fraction of total income or token incentive bonus that members pay into the CBFS. One or more earmarks exist for each arm of the CBFS.
  • Engagements: The positions that the CBFS funds. The three types are: market, service, and nurture.
  • Growth period: In the LEDDA Microsimulation Model, the first 15 years in which member incomes and the token share of income rise.
  • Incentive bonus: A bonus paid in tokens to those individuals who choose
  • Income target: A series of annual incomes, to be paid in tokens plus dollars, to those individuals who choose Wage Option 1. Like the incentive, the income target is decided upon by the LEDDA membership.
  • IP Pool: Intellectual Property Pool. A collection of IP rights for works or inventions developed by the Principled Businesses of a LEDDA or group of LEDDAs.
  • LEDDA: Local Economic Direct Democracy Association. A membershipbased, community-benefit association that implements the LEDDA framework.
  • LEDDA Microsimulation Model: The simulation model of a county-level token–dollar economy submitted for journal publication.
  • LFNJ: LEDDA-funded new job. A job that is created via CBFS funding.
  • Market engagement: An engagement funded by the CBFS within the for-profit sector. It is similar to a normal job in the for-profit sector.
  • Member: A person, business, nonprofit, or other organization that chooses to join a LEDDA and thus is eligible to receive tokens.
  • NIWF: Not in workforce. Reference to a person or persons who are not in the workforce and so are neither employed nor unemployed.
  • Nonprofit organizations: Charitable organizations that apply for and receive IRS 501(c)(3) tax exemption, and other organizations that receive tax exemption by default or under a different section of IRS Code. In this book, nonprofit organizations can include schools and colleges, research institutes, charities serving households, public service agencies, churches, and government agencies.
  • Nurture engagement: An engagement funded by the CBFS that provides income assistance to unemployed and NIWF members. Nurture engagements similar to commissions might also be offered to artists.
  • Post-CBFS income: Pre-tax income after CBFS contributions have been made. It can be thought of as pre-tax, take-home income.
  • Principled Business: A business that conforms to a hybrid model unique to the LEDDA framework. The model is a cross between nonprofit and for-profit business models.
  • Service engagement: An engagement funded by the CBFS within the nonprofit sector. It is similar to a normal job in the nonprofit sector.
  • Standard business: A for-profit business that is not a Principled Business.
  • T&D: Tokens plus dollars, or if either is zero, tokens or dollars. The purchasing power of the token is assumed equal to that of the inflation-adjusted dollar.
  • Target population: In the LEDDA Microsimulation Model, the population of local families that have incomes initially below the 90th percentile (about $101,000 per year).
  • TES: Token Exchange System. The system that defines token–dollar flow. It consists of the CBFS and TMS.
  • TMS: Token Monetary System. The system that creates and destroys tokens.
  • Token: The local electronic currency that a LEDDA issues.
  • TSI: Token share of income. The fraction of a member’s income that is paid in tokens.
  • TSI target: A series of annual TSI values that apply to incomes of individuals who choose Wage Option 1.
  • Wage Option: An annual choice given to members regarding how their CBFS contributions are calculated. In Wage Option 1, contributions are calculated based on the income target. In Wage Option 2, they are calculated based on the incentive bonus.
  • Wage Option 2. In the LEDDA Microsimulation Model, the incentive was 3,000 tokens per year.

(source: Economic Direct Democracy)

Model Assumptions 

The micosimulation model of a LEDDA describes how the participation rate, income and TSI targets, CBFS earmarks, and other more minor parameters affect the income, TSI, and job status of individual members.

The microsimulation of a LEDDA while elementary, also represents a milestone. It is the first simulation model to examine semi-realistic flows of complementary and national currency concurrently within a local economy. This hypothetical model emulates token–dollar flow in a virtual U.S. county of population 100,000. For simplicity, it is further assumed that all adults in the county are married without children.

The aims of the model are to:

  1. introduce the LEDDA framework,
  2. describe general concepts of token–dollar flow,
  3. demonstrate that a set of parameters exists that results in increased mean family income, full income equality, and full employment, for the simulated member population

The model is semi-realistic in the sense that dollar flows at the start of the simulation resemble those of a real US county economy. Starting income levels resemble real income levels, and tax rates resemble real tax rates of a typical US county of this size. Conditions evolve from this starting point.

The model is a descriptive rather than predictive model. As such, it is concerned only with a limited set of events and flows within the token–dollar economy. The dollar economy and demographics serve primarily as a static backdrop and parameters such as:

  • inflation,
  • normal economic growth,
  • personal savings and investment,
  • birth and death of individuals,
  • income changes for non-members

are not necessary to model in order to gain descriptive insight into how such a hypothetical economy might behave.

Other assumptions are:

  1. the LEDDA participation rate starts at 5 percent of county residents in Year 1 and grows to 90 percent in Year 15. This interval is called the growth period
  2. the income target and TSI target steadily rise during this period
  3. no new members join after the growth period ends, and both the income and TSI targets remain steady until the simulation ends in Year 28.

Assumption 1 is based on  participants  joining primarily due to income gain. Every person who joins and who receives tokens obtains an income increase. (Some members do not receive tokens right away.) Persons who have low starting incomes see proportionally greater income gains. The 90 percent that join all come from families with starting incomes below the 90th percentile (below about $101,000 per year). This group is called the target population.

Gains for persons who come from higher-earning families are modest, and might not be enough to motivate membership. In a real LEDDA, however, members would likely come from all income brackets because all families could gain in well-being, even if they gain little in income.

Some other points:

  • the income target is a series of annual token plus dollar (T&D) incomes that some members receive,
  • Token Share of Income (TSI) is the the fraction of a member’s income that is paid in tokens,
  • The TSI target is a series of TSI values that apply to the income target,
  • In the simulation, both targets are constructed using a linear growth formula

A real LEDDA differs from the simulation in that income and TSI targets, and CBFS earmarks (fractions of income contributed to the CBFS), are democratically chosen by members before operations begin, and could be amended over time as necessary.

Results

The most dramatic result of the 28 year simulation is the significant redistribution of wealth. In fact, by year 10, a significant shift has occurred and by year 15, the wealth redistribution is practically 100%.

 

 ledda sim yr 0 ledda sim yr 10 ledda sim yr 15 ledda sim yr 20

ledda sim yr 28

 Figure 2: County Post-CBFS income population density over 28 year simulation period (Source: Principled Societies Project)

 

  • The TSI target starts at 5 percent in Year 1 and grows to 35 percent in Year 15.
  • Only minor effects are seen after Year 15 for most of the variables tracked.

The gain in member mean family income over the simulation period for a county population of 100,000 adults is dramatic:

ledda mean post-CBFS family income with and without accumulated CBFS savings

Figure 4.1: Mean post-CBFS family income with and without accumulated CBFS savings (Source: Principled Societies Project)

 

  • mean income starts at about $40,000 annually in Year 0 (based on U.S. Census microdata)
  • mean income rises to about 104,000 T&D in Year 28. This is post-CBFS income—pretax income after contributions to the CBFS have been made
  • Post-CBFS income can be thought of as pre-tax, take-home income
  • It is assumed that one token equals one inflation-adjusted dollar in purchasing power
  • This implies mean family income increased by 267 percent in the simulation.